Increases in photosynthetic capacity (A<sub>1500</sub>) after defoliation have been attributed to changes in leaf-level biochemistry, water, and/or nutrient status. The hypothesis that transient photosynthetic responses to partial defoliation are regulated by whole-plant (e.g. source–sink relationships or changes in hydraulic conductance) rather than leaf-level mechanisms is tested here. Temporal variation in leaf-level gas exchange, chemistry, whole-plant soil-to-leaf hydraulic conductance (K<sub>P</sub>), and aboveground biomass partitioning were determined to evaluate mechanisms responsible for increases in A<sub>1500</sub> of <i>Eucalyptus globulus</i> L. potted saplings. A<sub>1500</sub> increased in response to debudding (B), partial defoliation (D), and combined B&D treatments by up to 36% at 5 weeks after treatment. Changes in leaf-level factors partly explained increases in A<sub>1500</sub> of B and B&D treatments but not for D treatment. By week 5, saplings in B, B&D, and D treatments had similar leaf-specific K<sub>P</sub> to control trees by maintaining lower midday water potentials and higher transpiration rate per leaf area. Whole-plant source:sink ratios correlated strongly with A<sub>1500</sub>. Further, unlike K<sub>P</sub>, temporal changes in source:sink ratios tracked well with those observed for A<sub>1500</sub>. The results indicate that increases in A<sub>1500</sub> after partial defoliation treatments were largely driven by an increased demand for assimilate by developing sinks rather than improvements in whole-plant water relations and changes in leaf-level factors. Three carbohydrates, galactional, stachyose, and, to a lesser extent, raffinose, correlated strongly with photosynthetic capacity, indicating that these sugars may function as signalling molecules in the regulation of longer term defoliation-induced gas exchange responses.